Post on 21-Mar-2022
transcript
Master of Science
in Innovation and Entrepreneurship
2009
ENT 4000
2nd meeting
TRONN Å. SKJERSTAD
Tel. +47 990 80 000
Mail: tronn@skjerstad.net
Overview
� 1st meeting: strategy – fundamentals and competition
� 2nd meeting: strategic choices – content and process
� 3rd meeting: extreme strategic choices – the rise and fall of businesses via M&A
ENT 4000 2nd meeting Tronn Å. Skjerstad 3
Agenda for 2nd meeting
�Strategic choices: the process
�Evaluation of strategic alternatives
• Suitability
• Feasibility
• Accept
�Recommended reading:• Technology Ventures ch. 15,20
ENT 4000 2nd meeting Tronn Å. Skjerstad 4
Framework for strategic choice
Strategic analysis Strategic alternatives
Evaluation of suitability
Filtering
Choice based on
- Feasibility - Accept
Implementation
ENT 4000 2nd meeting Tronn Å. Skjerstad 5
Strategy development calls for analysis
…when competition
for the customers’ attention
is intense
We need to understand our customers … and what they do
ENT 4000 2nd meeting Tronn Å. Skjerstad 6
Strategic analysis
Filtering
Choice- Feasibility- Accept
Implementation
Strategy
alternativesEvaluation (of suitability)
ENT 4000 2nd meeting Tronn Å. Skjerstad 7
STRATEGY ALTERNATIVES
STRATEGY-ALTERNATIVES
(a) What basis?
(generic strategies)
(b) What direction
(development directions)
(c) How
(development methods)
ENT 4000 2nd meeting Tronn Å. Skjerstad 8
IDENTIFICATION OF ALTERNATIVES
�Creativity vs. structure
�Time vs. completeness
ENT 4000 2nd meeting Tronn Å. Skjerstad 9
Identification (ctd.).
�Basis- Open minds
- Internal evaluation
- Ability to play with ideas and concepts
�Hard stoppers- Experience
- Motivation
- Culture
ENT 4000 2nd meeting Tronn Å. Skjerstad 10
Hard stoppers in practise
� ”We have tried this before”
� ”This is too new”
� ”NIH-syndrome”
� ”You are five years too early”
� ”It’s too late”
� ”We have managed well without”
� ”It’s impossible in practical life”
� ”We haven’t got the time”
ENT 4000 2nd meeting Tronn Å. Skjerstad 11
(a) Basis for strategy alternatives�Starting point:
To achieve a sustainable competitive position on the competitive arena
�Generic strategies (according to Porter)�Cost leadership
(lowest cost)
�Differentiation
(uniqueness to defend a higher price)
�Focus
(niches based on low cost/differentiation)
� ...and «stuck in the middle» is for losers
ENT 4000 2nd meeting Tronn Å. Skjerstad 12
(b) Development directions
Ansoff’s (1968) product-/market matrix
- Withdrawal- Consolidation- Market penetration
Productdevelopment
Marketdevelopment
Diversification(related/unrelated)
PRODUCTCurrent New
MARKET
Current
New
ENT 4000 2nd meeting Tronn Å. Skjerstad 13
Market development
� In new segments (branches)
� New applications of the same product
� New geographical areas�export
�production/distribution/sales organisation abroad
ENT 4000 2nd meeting Tronn Å. Skjerstad 14
Market development (ctd.)
� In capital intensive businesses with heavy investments in product and technology(e.g. from Fiat via Polski Fiat to Lada)
� In R&D-intensive businesses(e.g. IT and telecommunication)
� In service industries where customers are abroad(e.g. insurance and banking)
ENT 4000 2nd meeting Tronn Å. Skjerstad 15
Product development
� Takes several forms- Inventions (such as the first car)- New categories (like P&G’s 1st shampoo)- Additions to product lines (e.g. light beer)- Product improvements (as Windows 2003�XP)
� Demands both innovation and market orientation
ENT 4000 2nd meeting Tronn Å. Skjerstad 16
(c) Development methods
�Organic growth (internal development)
�Mergers and acquisitions (M&A)
�Alliances
ENT 4000 2nd meeting Tronn Å. Skjerstad 17
Organic growth
Typically preferred by:- Players in a market that is characterised by high uncertainty and need for standards
- Strong players who can choose between partners that can help him harvesting scale, synergy, and competence advantages
- Small players that do not have the resources to do acquisitions or are not attractive for alliances (”beggars can’t choose”)
ENT 4000 2nd meeting Tronn Å. Skjerstad 18
Mergers and acquisitions, M&A
� Tend to vary in ”popularity”• Over time
• Between branches
� Preferred because of the potential to achieve• Speed
• Competitive advantages
• Financial profit
ENT 4000 2nd meeting Tronn Å. Skjerstad 19
Alliances
� Increased «popularity» because of• Scarcity of internal resources• More and more complex business environment
�Vulnerable method• How real is the need to share resources • Whether or not resources can be shared• Protection of resources from exploitation
ENT 4000 2nd meeting Tronn Å. Skjerstad 20
Strategic choices related to innovation - radical change
� CharacteristicsCollapse, break trough – or disruption in a development process– related to market, technology and/or regulations� Sustaining innovations: improve the existing and addresses today’s
(profitable) customers� Disruptive innovations: improve performance along some dimensions and
reduce performance along other, and give cheaper and simpler products that are initially adopted by others than today’s (profitable) customers
� Follow-up question”Why do established players fail in situations with radical change despite abundance of competence and resources?”
� AnswerThey typically focus on sustaining innovations
ENT 4000 2nd meeting Tronn Å. Skjerstad 21
Network effects- speed matters
Growth: no of years to achieve 25 % of the US population0%
4.0%
2.0%
3.0%
1.0%
Growth per year
TV
26 years
Radio
22 years
Mobile
13
years
Internet
7 years
Telephone
35 years
ENT 4000 2nd meeting Tronn Å. Skjerstad 22
”But after all…”
� The established players have a lot of advantages:� Ownership of infrastructure� Knowledge of how to work with regulators� Resources� Have historically survived disruptive threats� Unchanged and un-challenged vertically integrated business model with
centralised control and coordination
� Even if they in principle can meet any change, they will meet competitive threats in niches- that in sum can represent a major threat
� Worst scenario: sudden change where the established player remains king in an old world that will be more and more irrelevant
� Winners and losers� The winners will be those who take the opportunities early and seek to
exploit opportunities for new growth � The losers will be those who sit and wait too long
ENT 4000 2nd meeting Tronn Å. Skjerstad 23
To see what is next…
� Prepare along three dimensions1. Signals of change
- Are there any signs that current or new players exploit new opportunities related to over/under served customers or “non-consumers”?
2. Competitive battles
- How do new entrants penetrate the market (based on asymmetricalmotivation and skills) without reaction from established players, and how will they manage in direct competition?
3. Strategic choices
- Do the players make decisions related to resources, competence and network that influence their chances of success?
� Organise for separate units� Small enough to celebrate small victories, but with enough resources to survive
� Do not expect to succeed at once
ENT 4000 2nd meeting Tronn Å. Skjerstad 24
Strategic analysis Strategic alternatives
Evaluationof suitability
Filter
Choice- Feasibility- Accept
Implementation
ENT 4000 2nd meeting Tronn Å. Skjerstad 25
Evaluation of alternatives
� ”Suitability” defines if a strategic alternative is realistic and matches the situation the business is in, and contributes to improve its competitive position
� Approach(a) Strategic logic
(b) Cultural match
(c) ”Empirical support”
ENT 4000 2nd meeting Tronn Å. Skjerstad 26
(a) Strategic logic
� Portfolio analysis
� Relation to product life cycle
� Potential synergies related to value creation logic
ENT 4000 2nd meeting Tronn Å. Skjerstad 28
(c) ”Empirical support”
�Companies in the same industry
�Other industries
�Other regions
ENT 4000 2nd meeting Tronn Å. Skjerstad 29
Filter – from “long list” to “short list”
Short listing
�Prioritisation
�Decision trees
�Scenarios
ENT 4000 2nd meeting Tronn Å. Skjerstad 30
Strategic analysis Strategic alternatives
Evaluation of suitability
Filter
Choice- Feasibility- Accept
Implementation
ENT 4000 2nd meeting Tronn Å. Skjerstad 31
Key criteriaGiven the evaluation of the logic in the strategic alternatives and the potential for suitability and match with current strategy
(a) Feasibility- Funding - Break-even- Resources
(b) Accept- Return on investments- Risk- Key stake holders’ expectations
ENT 4000 2nd meeting Tronn Å. Skjerstad 32
(a) Feasibility as criteria
� Is the strategy realistic to fund?� Is the organisation capable of perform?� Can necessary competence and resources be
secured?� Can necessary market position be achieved?� How can response from competitors be handled?� Is necessary technology available?
ENT 4000 2nd meeting Tronn Å. Skjerstad 33
Analysis of feasibility
�Funding- Necessary capital investment
- Accumulated profit
- Increase in working capital
�Break-even
�Alternative ways of utilising resources
ENT 4000 2nd meeting Tronn Å. Skjerstad 34
(b) Accept as criteria
� Owners will consider� Return on investment (cost/benefit)� Financial risk� Effects on capital structure
� Influence the organisation’s (individuals and groups) expectations
� Effects on other stake holders� Creditors� Suppliers� Customers� Government
ENT 4000 2nd meeting Tronn Å. Skjerstad 35
Evaluation of return on investments
�Analysis of profitability�Pay-back time
�Discounted cash-flow
�Market valuations
�Analyses of cost/benefit�Qualitative
�Quantitative (if possible)
ENT 4000 2nd meeting Tronn Å. Skjerstad 36
Evaluation of risk
�Financially• Influence on capital structure
• Time to break-even
• Influence on lquidity
�Sensibility analyses
“What if” critical assumptions are changed
�Scenarios
Situation in pessimistic, optimistic, and realistic cases
�Heuristic models
«Good enough»
ENT 4000 2nd meeting Tronn Å. Skjerstad 37
The practical choice
�Criteria are not always established
� ....and they are not always used
�Higher authorities play a more ore less visible role
� Implementation is more or less intense
�External conditions often play a role…
ENT 4000 2nd meeting Tronn Å. Skjerstad 38
Why do estimates often fail?
� Momentum driven�Over-optimistic in bull times�Over-pessimistic in bear times
� Too self-confident� ”I know that everyone believe that
they are above average, but i know that I AM.”
�Experts (especially in finance!) over-estimate their knowledge more than others 0
10
20
30
40
50
60
70
80
Over Below
Percentage of assetmanagers whobelieve they areabove average
Kilde: DrKW/Macro Research/Finansavisen
ENT 4000 2nd meeting Tronn Å. Skjerstad 39
Why are estimates followed anyway?
� Lack of skills� The ability to produce the right answers are practically the same as those
to evaluate the answers
� If people lact the abililty to give the right answers, the are also cursed with a lack of ability to know if answers are right or wrong
� Pride and bad excuses� If only (”…Norges Bank had increased the interest rate earlier”)
� Everything else equal (”but imports from China made clothes cheaper”)
� I was almost right (”But the market was up just before it closed”)
� It has not happened yet (”But the market will crash soon”)
ENT 4000 2nd meeting Tronn Å. Skjerstad 40
So why are estimates used after all?
� The hope of beating efficient markets through information others don’t have
� Anchoring: with uncertainty you will stick to what is known, although irrelevant
� What else can we do?
0
1000
2000
3000
4000
5000
6000
7000
>7000 <2000
Guesstimate of howmany doctors intown depending inthe four last digitsin the assetmanagerstelephone number
Kilde: DrKW/Macro Research/Finansavisen
6762
2270
ENT 4000 2nd meeting Tronn Å. Skjerstad 41
Task to 2nd meeting
Go together in groups of five. Find a technology company that is listed on the Oslo Stock Exchange to concentrate on in your group. Use available information from open, secondary sources to analyse the company.To our 2nd meeting you will prepare a 10 minutes presentation from the group to the rest of us based on the following structure:
� Introduction: presentation of the company's history, current turnover, management, customers etc.
� The role of technology and the entrepreneur(s): what kind of technology, developed by who, and with what strategy
� Current challenges: growth strategy, including further technology development, marketing, partnerships etc.
After each presentation there will be app. five minutes Q & A per group.